City Office Market Questions Loom

NEW HAVEN –– Although the overall New Haven vacancy rate rose slightly during the first quarter of 2011, growing from 11.6 percent to 11.7 percent, the changes “are insignificant,” according to Colliers International senior broker John Keogh, who cited them in his latest quarterly marketing report tracking the ebb and flow of tenants in 57 office properties. It was the fifth consecutive quarter the vacancy rate has risen.

“What you had is this very slow erosion, which didn’t start during the first couple of years of the economic downturn because Yale kept leasing space and the one deal with Covidien [for some 130,000 square feet at 555 Long Wharf Drive] brought vacancy way down, and it didn’t show up until those bigger moves stopped happening,” Keogh explains.

The latest big move to “outweigh the erosion” is Higher One, which will vacate its current 50,000 square feet at 25 Science Park next year, when its new 140,000-square-foot headquarters is completed at the former site of the Winchester Repeating Arms Co.

Keogh says the city’s vacancy rate is “low relative to what it is elsewhere in Connecticut, and what it is elsewhere in the U.S. — and to what it has beenhistorically in New Haven.”

Lackluster leasing has led to more landlord concessions of late. “In the last three to six months, I’ve noticed there seems to be a greater willingness on the part of landlords to offer free rent or a period of reduced rent at the outset of the lease and tenant improvements,” Keogh says.

For the most part rental rates haven’t risen. One exception is 59 Elm Street, which hiked office space from $19 per square foot to $21.50 in the last year.

“The market has held up quite well through a protracted period of economic downturn and there are still positive things happening like Higher One,” Keogh says. “But there are some clouds looming in the distance.”

The most noticeable cloud is what will happen at 157 Church Street in 2012, when United Illuminating Co.’s lease expires at the Connecticut Financial Center. “They’ve got 240,000 square feet and may keep 40,000 to 50,000,” Keogh says. “Another question is what happens with the Yale development office, which is leasing 60,000 square feet from UI in the building.”